It’s Competitive Out There
Applied Process is deeply involved in the business of casting conversions, especially ADI conversions, but we are not actually a production foundry. This means we have an opportunity to discuss one aspect of the process from a more unbiased point of view.
When a new part design is nearly complete the OEM begins to seek a foundry source for that casting. All of the foundries I know fully understand that it is a competitive marketplace out there. That said, having done this many times, the OEM is best served by working with one or two foundries from the beginning of the process.
You might say, “That sounds an awful lot like the foundries are seeking to limit competition so they can charge high prices to OEM’s. What kind of an economist are you?” I would respond that when you see the whole picture this idea will crumble. Let’s compare two approaches.
In Approach #1, the OEM finalizes a design and sends it out to 20 casting sources, domestic and abroad. Such wide competition is sure to drive down the price to some level we will call “X”. There is a problem with this, however. The casting design process offers many opportunities for cost-cutting that are not readily apparent to the designer or the buyer. This happens even with large, sophisticated OEM’s.
In Approach #2, the OEM works with one or two trusted foundries from the beginning of the design stage. The foundry offers design input to reduce the cost of manufacturing the part to make the casting process more competitive with other manufacturing methods. This might include adjusting a parting line to reduce finishing costs or making another change that eliminates a core or making another change that allows two parts on a pattern instead of one or reducing some draft to minimize machining costs. These adjustments represent massive costs savings compared to the “20 quotes and a cloud of dust” approach. The resultant price “Y” will surely be lower than “X”.
The foundries I know who do conversions are always willing to jump in and execute those changes to generate a lower total price for the OEM and better sales for themselves. If the foundry source is unwilling or unable to do this, then the OEM needs new foundry sources. If the OEM wants to exploit a foundry’s technical input and then proceed with “20 quotes and a cloud of dust”, then they will very quickly evaporate their best sources of casting design input and they will pay more in the end.